Federal Court Upholds Compensation Fund's Right to Sue Travel Agents

OUTCOME: Allowed

CATCHWORDS

By-Laws & [NAME] 1987 - whether repeal of cl 20 affected rights acquired or obligations incurred before the date of repeal, or any proceeding or remedy in respect of any such right - Interpretation Act (NSW) s 30 - [NAME] 1995 - whether cl 20 validly establishes a [NAME] under the [NAME] 1986 (NSW) - whether a scheme prescribed under s 57(2)(a) of the Act is required by s 57(2)(b) to be prescribed by reference to a schedule comprising a copy of the trust deed by which the scheme is established - whether lack of certainty in language used and serious consequences of alternate holding indicate the directory rather than mandatory nature of s 57(2)(b) Evidence - Proof - extent to which reasonable inference may be drawn in relation to "act or omission" of [NAME] under s 40(3) of [NAME] 1986 (NSW) [NAME] 1986 (NSW) subs 40(3), subs 40(4), subs 40(5), subs 57(1), subs 57(2)(a), subs 57(2)(b), subs 57(2)(c) and subs 52(3)(1) Interpretation Act 1987 (NSW) subs 30(1) [NAME] 1987 cl 20, cl 15.1, cl 15.2 [NAME] 1995 cl 20, cl 15.1, cl 15.2

[APPELLANT] v Dunn FCA 2 December 1992 unreported [NAME] v [NAME]) (1971) 125 CLR 228 R v Secretary of State for [NAME] [COMPANY], ex parte Association of Metropolitan Authorities [1986] 1 WLR 1 [NAME] [NAME] [1993] QB 473) [NAME] v The Commonwealth (1975) 134 CLR 81 Clayton v Heffron (1960) 105 CLR 214 Australian Broadcasting Corporation v [COMPANY] (1987) 11 NSWLR 621 [NAME] v Brisbane City Council (1973) 133 CLR 242 [NAME] v [COMPANY] (1992) 30 NSWLR 307 [APPELLANT] v [COMPANY] (IN LIQUIDATION) AND ORS No. NG 686 of 1995 CORAM: Lehane J PLACE: Sydney DATE: 13 February 1997

IN THE FEDERAL COURT OF AUSTRALIA ) [APPELLANT] ) GENERAL DIVISION ) No. NG 686 of 1995 BETWEEN: [APPELLANT] Applicant AND: [COMPANY] (IN LIQUIDATION) [APPELLANT] [COMPANY] (IN LIQUIDATION) [APPELLANT]: Lehane J PLACE: Sydney DATE: 13 February 1997 [APPELLANT] THE [APPELLANT]:

1. The applicant within seven days from the delivery of these reasons for judgment file and serve on the [NAME] short minutes giving effect to the conclusions contained in the judgment. NOTE: Settlement and entry of [APPELLANT] is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) [APPELLANT] ) GENERAL DIVISION ) No. NG 585 of 1995 [APPELLANT] Applicant AND: [COMPANY] (IN LIQUIDATION) [APPELLANT] [APPELLANT] [APPELLANT] [COMPANY] (IN LIQUIDATION) [NAME] [APPELLANT]: [APPELLANT[NAME]: Sydney DATE: 13 February 1997

REASONS FOR

JUDGMENT LEHANE J: The applicant, which asserts that [APPELLANT] body of [NAME] of [NAME] established under the [NAME] 1986 (NSW), claims that it is entitled, under subs 40(4) of the Act, to recover from the [NAME] sums which the applicant says it has paid to claimants under the scheme. The [NAME] are companies, both of which are in liquidation: an order that each be wound up was made by the Court on 19 August 1994; the applicant obtained leave to proceed against each of them but neither lodged a defence and each appeared simply to submit to such [APPELLANT] as the Court might make. The third [APPELLANT] has throughout the relevant period been a director of each of the [NAME]. By leave of the Court, he filed a defence on 31 January 1997 and, though he led no evidence, he was represented by a solicitor, Mr [COUNSEL], at the trial. [COUNSEL] against other respondents have been discontinued, as have cross claims made by the second [APPELLANT]. Thus, the substantial contest at the trial was between the applicant and the third [APPELLANT]. I shall return to the matters in issue between those parties; first, I think it is helpful to describe the legislative context in which the applicant's claims arise. Legislative Context The Act is the New South Wales legislative part of a [NAME] and, I was told, substantially uniform legislative scheme for the regulation of the [NAME] agency business in New South Wales, [NAME], South Australia and Western Australia. The Act provides for the licensing of persons carrying on business as [NAME]; it provides for the supervision of [NAME] and for disciplinary proceedings against them; it regulates in various ways the conduct of [NAME] agency business; and, of particular relevance to these proceedings, it contemplates the establishment of a [NAME]. The Act does not itself establish a [NAME]. Instead, it provides for the establishment of such a scheme by regulation. Section 57 provides, in subss (1) and (2), as follows: 57. (1) The Governor may make regulations, not inconsistent with this Act, for or with respect to any matter that by this Act is required or permitted to be prescribed, or that is necessary or convenient to be prescribed, for carrying out or giving effect to this Act. (2) The regulations may: (a) prescribe a scheme for compensating persons who suffer a pecuniary loss by reason of an act or omission by a person who carries on, or carried on, business as a [NAME] agent; (b) prescribe the scheme by reference to a schedule comprising a copy of the trust deed by which the scheme is established; and (c) from time to time amend that schedule to incorporate amendments of the trust deed of which the Commissioner is notified by the [NAME].

The [NAME] of a scheme thus established are defined by subs (3)(1) as the "[NAME]", and s 52 provides that the [NAME] may sue and be sued in the name of "[APPELLANT]" and that, in any action brought by them, it shall be presumed, unless the contrary is proved, that any condition precedent to the bringing of the action, imposed on them by [NAME], has been complied with. Subsections (3), (4) and (5) of s 40 are of particular importance. They provide: (3) Where a payment is made to a claimant under [NAME] by reason of an act or omission by a person carrying on business as a [NAME] agent, the [NAME] are subrogated to the rights of the claimant in relation to the act or omission.

(4) Where the rights conferred by subsection (3) on the [NAME] are exercisable against a body corporate, those rights are enforceable jointly against the body corporate and the persons who were its directors at the time of the act or omission and severally against the body corporate and each of those directors. (5) Where it is proved that an act or omission by a body corporate occurred without the knowledge or consent of a director of the body corporate, rights are not enforceable as provided by subsection (4) against the director in relation to the act or omission.

Thus if, as a result of an act or omission of a person carrying on business as a [NAME] agent, a third party (the claimant) has rights against that person and the [NAME], "by reason of" the act or omission, make a payment to the claimant then the [NAME] are subrogated to those rights. Clearly, that means that in those circumstances the [NAME] stand in the shoes of the claimant: [redacted] To provide that A is subrogated to B's rights against C, where B has no concurrent claim against D, and that A may "enforce" jointly and severally against C and D the "right" which it thus gets by subrogation, is perhaps a somewhat elliptical way of imposing (for the benefit of A) a coordinate liability on D in respect of B's claim against C: a liability to which, but for the statutory "subrogation", [NAME] would not be subject (and which D still does not owe to B). That, however, appears clearly enough to be the intention of the provision, and [APPELLANT] effect attributed to it by Wilcox J in [APPELLANT] v Dunn FCA 2 December 1992 unreported. I think I should proceed on the basis that that is the way in which subs (4) operates: no argument to the contrary was put to me. A regulation, the [NAME] 1987 (the 1987 Regulation), took effect on and from 2 February 1987. Clause 20 of the 1987 Regulation prescribed, under s 57(2), a [NAME]: the scheme was to be that contained in a trust deed a copy of which was set out in Schedule 2 to the 1987 Regulation. The 1987 Regulation was repealed by the [NAME] 1995 (the 1995 Regulation) which commenced on 1 September 1995. Clause 20 of the 1995 Regulation obviously was intended to continue the existing scheme in operation. But, rather than following the form of its predecessor, it expressed that intention as follows: 20. (1) For the purposes of section 57(2)(a) of the Act, [NAME] for compensating persons who suffer a pecuniary loss by reason of an act or omission by a person who carries on, or carried on, business as a [NAME] agent is [NAME] established by the trust deed made on 12 December 1986 by [NAME] [NAME], [NAME] and [NAME], as amended from time to time. (2) A copy of the trust deed may be obtained from the Commissioner.

The regulation did not, in the words of para 57(2)(b) of the Act, "prescribe the scheme by reference to a schedule comprising a copy of the trust deed by which the scheme is established"; instead, it told the reader from whom a copy might be obtained. The deed establishing [NAME], scheduled to the 1987 Regulation (which is the deed referred to in cl 20 of the 1995 Regulation), has been amended several times, including once during the period to which these proceedings relate. Its substance, however, did not change in any way which is material to the outcome of these proceedings. The deed is common to each of the participating States: that is, it is prescribed not just for the purpose of the New South Wales legislation but also for that of [NAME], South Australia and Western Australia. Clause 15 provides for the payment of compensation. Until 15 May 1995 its first two subclauses provided as follows: 15.1 Subject to this Deed, the [NAME] shall pay compensation out of the [APPELLANT] to a [NAME] - (a) who is a client; and (b) who has suffered or may suffer pecuniary loss arising directly from a failure to account for [RESPONDENT] or other valuable consideration by a [NAME] - where - (c) the failure to account arises from an act or omission by the [NAME] or an employee or agent of the [NAME]; and

(d) the client is not protected against the loss by a policy of [NAME]. 15.2 The [NAME] may in their absolute discretion pay compensation to a [NAME] to whom they are not required to pay compensation by virtue of clause 15.1.

On 15 May 1995 subcl 15.2 was amended. The effect of the amendment was twofold. First, it was made clear that compensation under subcl 15.1 might (in the [NAME]' discretion) extend to consequential loss; and, secondly, the category of those to whom compensation might, as a matter of discretion, be paid was extended, beyond the class of beneficiaries as defined, to "a person to whom they are not required to pay compensation under clause 15.1". Thus, at all relevant times the [NAME] had an obligation to pay compensation where the requirements of subcl 15.1 were met. Except for the use of certain defined terms, those requirements speak for themselves. A defined term of particular significance is "[NAME]": that means, in broad terms, a [NAME] agent licensed under one of the State Acts which meets, in addition, certain eligibility requirements prescribed by the Deed. From 15 May 1995 the class of cases in which, under sub cl 15.2, the [NAME] might in their discretion pay compensation was very broad; before the May 1995 amendment, it was limited by reference to the term "[NAME]", defined relevantly as a ... person who entrusts [RESPONDENT] or other valuable consideration to another person (or an employee or agent to the other person) in the course of the other person's carrying on business as a [NAME] agent in a State if either: (i) that other person; or

(ii) any third or subsequent person who carries on business as a [NAME] agent in a State and who, in turn, received directly or indirectly through an employee or agent of the third or subsequent person all or any part of that [RESPONDENT] or consideration, other than as a principal, fails to account for the relevant [RESPONDENT] or consideration, whether due to an act or to an omission of that person (or an employee or agent of that person) [sic].

Thus, before the amendment, the discretion to pay compensation under sub cl 15.2 was limited by reference to a requirement that the claim arise from the "entrusting" of consideration to a person carrying on business as a [NAME] agent where there had been a failure to account (apparently) due to an act or omission of the [NAME] agent or its employee or agent. Particularly, however, it may be noted that at all relevant times compensation might be paid under subcl 15.2 despite the fact that the agent [NAME] was not a [NAME] (as the [NAME] [APPELLANT] was not) and even if the claim was covered by [NAME] (as some of the claims relating to the [NAME] may have been). The invalidity argument Before turning to the question whether the applicant has otherwise made out its claims against the [NAME], it is convenient to consider a contention of the third [APPELLANT] that cl 20 of the 1995 Regulation does not validly establish a [NAME] under the Act so that there is now no such scheme in existence; and so that those who claim to be the [NAME] of such a scheme are not [NAME] for the purposes of the Act and have no title, under s 52 of the Act, to sue in the name of the "[APPELLANT]". The basis of the contention is stated in para 2A of the third [APPELLANT]'s defence: the third [APPELLANT] ... says the scheme is not the scheme prescribed under section 57 of the [NAME] 1986 (NSW) ("the Act"). Sections 20(1) and (2) of the [NAME] 1995 ("the Regulation") which commenced on 1 September 1995 purports to prescribe a [NAME] for the purposes of Section 57(2)(a) of the Act. Section 57(2)(b) of the Act requires that any regulations which prescribe a scheme do so by reference to a schedule comprising a copy of the trust deed by which the scheme is established. Sections 20(1) and (2) of the Regulation fail to prescribe the scheme by reference to a schedule comprising a copy of the trust deed by which the scheme is established.

The essence of the argument is that the 1987 Regulation, which prescribed a [NAME], was repealed with effect from 1 September 1995. Clause 20 of the 1995 Regulation purported to prescribe the same scheme; but it failed to do so effectively because it did not obey what was said to be the statutory requirement, in s 57, that the scheme be prescribed by reference to a schedule comprising a copy of the trust deed by which the scheme was established. Consequently, from 1 September 1995 there was no [NAME] and the [NAME] of the deed referred to in the 1995 Regulation had no right of subrogation under s 40 or, on 5 September 1995 (when they commenced these proceedings) or subsequently, a right to sue under s 52. To that contention the applicant made two answers. First, as all matters giving rise to the right claimed by the applicant arose before 1 September 1995, its claim was properly to be regarded as based on the 1987 Regulation: thus its repeal did not affect the rights which the applicant had acquired, the obligations which the respondents had incurred or any legal proceeding or remedy in respect of any such right or obligation: Interpretation Act 1987 (NSW) subs 30(1). Secondly, the applicant argued that para 57(2)(b) of the Act was to be regarded as directory only, so that the failure to prescribe the scheme by reference to a deed set out in a schedule did not render the regulation invalid. In my view both the applicant's arguments should be accepted. (a) Interpretation Act, s 30 Subsection 30(1) of the Interpretation Act provides: (1) The amendment or repeal of an Act or statutory rule does not: (a) revive anything not in force or existing at the time at which the amendment or repeal takes effect, or (b) affect the previous operation of the Act or statutory rule or anything duly suffered, done or commenced under the Act or statutory rule, or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act or statutory rule, or (d) affect any penalty incurred in respect of any offence arising under the Act or statutory rule, or (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability or penalty, and any such penalty may be imposed and enforced, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, as if the Act or statutory rule had not been amended or repealed.

Clearly, for most purposes at least, if there is now a "[NAME]" for the purposes of subs 3(1) of the Act, it is not that which was prescribed by the 1987 Regulation; nor, for most purposes, are the "[NAME]" those administering a scheme prescribed by the repealed regulation. Thus, if cl 20 of the 1995 Regulation were invalid, there would, for most purposes, simply be no continuing [NAME] as defined in the Act. It would not follow, however, that the [NAME] would, on that assumption, have failed as from 1 September 1995: it was not suggested that the deed did not validly constitute the trust which it purported to establish; if the trust ceased to be [NAME] for the purpose of the Act, there is no reason to suppose that it could not continue on the terms set out in the deed. I can see nothing in the deed as prescribed by the 1987 Regulation to suggest that it could not continue to operate; and though there is provision for the termination of the trust in certain circumstances, those circumstances do not include its ceasing to be [NAME] under the Act. If it were not that [NAME], of course, its [NAME] would not have, subject to the effect of s 30 of the Interpretation Act, the rights or powers which the Act gives to the [NAME]. But, since the trust would continue in existence and to be capable of administration, there would be no impediment to the continuing exercise by the [NAME] of any statutory rights or remedies which, by virtue of s 30, they retained. The evidence is that all the claims with which these proceedings are [NAME] were made and paid by the [NAME] before 1 September 1995. On the assumption that the payments were made under the scheme (prescribed by the 1987 Regulation) by reason of an act or omission in relation to which the claimants had rights, those rights had arisen and the [NAME] had, before 1 September 1995, become "subrogated" to them; on the same assumption, the [NAME] thus had, before 1 September 1995, rights which were enforceable jointly against the [NAME] agent [NAME] and those who were its directors at the time of the relevant acts or omissions. The relevant rights, therefore, had been acquired under subs 40(3) and legal proceedings and remedies were available, under subs 40(4), in respect of them before the repeal of the 1987 Regulation; thus the repeal did not affect the rights (or the correlative obligations) and the proceedings might be instituted and remedies enforced as if the 1987 Regulation had not been repealed; I can see no reason to doubt that the rights and proceedings unaffected by the repeal include suit in the name of "[APPELLANT]" under s 52 of the Act. The effect of provisions such as a s 30 of the Interpretation Act was considered by the High Court in [NAME] v [NAME]) (1971) 125 CLR 228. The judgment of [NAME[NAME] (with whom [NAME] and [NAME] JJ agreed) at 245 indicates plainly the distinction between that case and one such as the present and shows, in my view, equally plainly that this is a case where the Interpretation Act preserves the right (under s 52 of the Act) to commence proceedings in respect of an accrued substantive right (under subss 40(3) and (4)).

(b) Validity of 1995 Regulation On the question of the validity of the 1995 Regulation the starting point must, I think, be a consideration of the way in which subs 57(2) of the Act is expressed. It was put to me by Mr [NAME] that the use of the word "and" at the end of para (b) indicates, as a matter of grammar, that the three paragraphs of the subsection, but particularly paras (a) and (b), are to be read cumulatively. Often - perhaps usually - that will be the effect of the use of the word "and" in that way. However, a number of particular matters may be noticed. One is that the three paragraphs obviously cannot be read as cumulative in the sense that if the regulations do one of the three things indicated they must necessarily do all three. That is so, if for no other reason, because para (c) deals with amendments and is applicable, of course, only if amendments in fact are made. Another aspect of para (c) may be mentioned. It empowers the Governor to make regulations which amend a schedule (in which a form of deed is set out) to incorporate amendments to the deed of which the Commissioner is notified; but there appears to be no actual requirement to notify and the assumption is, and it is borne out by the amendment provisions in cl 30 of the trust deed, that amendment (i.e. effective amendment) precedes notification. That is to say, the deed, if set out in a schedule to a regulation, may be amended without notification and without the necessity of making a regulation under para (c). The other matter to be noted, in relation to paras (a) and (b), is that they are expressed as separate powers, though notionally linked by the word "and". If it had been intended to provide that a scheme might be prescribed only by reference to a schedule, it would have been easy enough so to provide within para (a) itself: the separation of the two paragraphs might be taken to suggest that the means provided by para (b) was one, but not the exclusive, way in which a scheme might be prescribed. Simply as a matter of language, I do not think that, although para (b) may be read as imposing a requirement which must be observed when a scheme is prescribed under para (a), that is its only possible construction. No attention was directed in argument to that aspect of the construction of the section. Instead, the applicant argued that para (b) was to be regarded as directory rather than mandatory, so that a failure to comply strictly with the particular manner prescribed for publication of the scheme should not be regarded as invalidating the 1995 Regulation. It is, I think, clear enough that that distinction is relevant in the context of conditions required to be met, and procedures required to be followed, in the making of delegated legislation. Although perhaps the English cases (e.g. R v Secretary of State for [NAME] [COMPANY], ex parte Association of Metropolitan Authorities [1986] 1 WLR 1, [NAME] [NAME] [1993] QB 473) should be regarded with caution, since the issue seems generally to arise there in the context of judicial review, the decision of the High Court in [NAME] v The Commonwealth (1975) 134 CLR 81 proceeds on the footing that the distinction is relevant to the requirements to be met under s 57 of the Constitution in order that a law may be passed by a joint sitting of the Senate and the House of Representatives: see at 155-162 per [NAME[NAME]; 178-180 per [NAME[NAME] and 182, 183 per [NAME[NAME]; see also Clayton v Heffron (1960) 105 CLR 214, especially at 247 per [NAME], [NAME], Taylor and Windeyer JJ. If the distinction was relevant to those cases there can, I think, be no reason to suppose that - possibly a fortiori - it not applicable here.

Assuming a preferred interpretation which requires prescription of a scheme by reference to a deed in a schedule, and by no other means, the question is whether, as a matter of construction, the statute was intended to have the effect of avoiding a regulation by which the terms of the scheme were published in some other way. The existence of the intention is to be ascertained by reference to the language of the section, its subject matter and objects and the consequences of holding void a regulation purportedly made otherwise than in strict compliance with the requirement: see Australian Broadcasting Corporation v [COMPANY] (1987) 11 NSWLR 621 at 634 per [NAME]. The language of the statute is, as I have shown, by no means crystal clear; it is relevant, I think, to the present inquiry that it is not a necessary construction of para (b) that it imposes an exclusive requirement. The purpose or object generally of subs 57(2) is, of course, to enable a scheme to be prescribed which will offer protection to [NAME] dealing with [NAME] who fail to account for [RESPONDENT] paid to them: quite plainly that in turn is a central element of the regulatory scheme which the Act establishes. A subsidiary object of paras (b) and (c) is, no doubt, to enable [NAME] to inform themselves of the current terms of scheme. However, if that object may be substantially achieved by means falling short of precise compliance with paragraph (b), the result if such means are adopted is not necessarily invalidity if there is what may be regarded as substantial compliance: [NAME] v Brisbane City Council (1973) 133 CLR 242 at 255, 256. The consequence of holding the 1995 Regulation invalid would be that there was in existence no [NAME] as referred to in the Act: an essential element in the legislative framework would be lacking. Although the invalidity of the 1995 Regulation would not entail the failure of the trust, it would deprive the [NAME] of the rights and powers which they are intended to have under the Act. One comment should be added in relation to the subsidiary object of paras (b) and (c), though it is implicit in what I have already said. The paragraphs do not provide a regime which will ensure that [NAME] are precisely informed of the current terms of the scheme: substantial amendments to the deed as originally scheduled may be made and will be effective even if further regulations are not made amending the schedule. That, I think, may be treated as an indication of an intention that substantial compliance, by way of making the deed available by other means, may be regarded as sufficient to save the 1995 Regulations from invalidity. The matters to which I have referred - particularly the lack of certainty in the language used, the fact that the means of publication provided will not, strictly, ensure that the public is informed as to the terms of the deed current at any time and the consequences of invalidity (particularly given the [NAME] nature of the legislative scheme) - persuade me that this is not a case where strict compliance with para 57(2)(b) is to be regarded as essential to the validity of a regulation under subs (2), and that cl 20 of the 1995 Regulation (which provides a method of publication which may be regarded as substantial compliance) is valid. If, on the material before me, I had been inclined to favour a different result, no doubt it would have been appropriate to relist the matter so as to give the [NAME] the opportunity to present argument in support of the 1995 Regulation: [NAME] v [COMPANY] (1992) 30 NSWLR 307 at 312. Given the conclusion to which I have come, however, that step is not required. Other issues The result of my conclusions about the effect of the repeal of the 1987 Regulation and the validity of the 1995 Regulation is that the [NAME] of the deed of 12 December 1986, as it has been amended, are the [NAME] under the Act and may sue in the name of the [APPELLANT]. In circumstances where subs 40(3) of the Act applies, they have rights of subrogation under that subsection and rights of enforcement under subs (4). The essential allegations in relation to the [APPELLANT], in the applicant's amended statement of claim, are as follows. It was incorporated in New South Wales, it carried on business as a [NAME] agent and was a [NAME] in [NAME] and it was ordered to be wound up, the winding up commencing on 19 August 1994. It is then alleged that claimants paid the [APPELLANT] sums of [RESPONDENT] for the future provision of [NAME] [COMPANY] and that the [APPELLANT] failed to provide the [COMPANY] or (as in the circumstances it was obliged) to repay or account for the moneys received. Thus, it is claimed, the [APPELLANT] is indebted to the claimants or liable to account to them in respect of the amounts paid. Each claimant is alleged to have claimed against the applicant in respect of the [APPELLANT]'s failure and the applicant to have made payments to the claimants; it is said that each of the payments made by the applicant is a payment made to the claimant under the scheme by reason of an act or omission of the [APPELLANT] carrying on business of a [NAME] agent and that consequently the applicant has the rights of subrogation arising under subs 40(3). It is then said that by a deed of release each claimant has assigned to the applicant all its relevant rights against the [APPELLANT] and its directors (that is a matter which does not affect the third [APPELLANT] as there is no material before the Court which suggests that any claimant had rights against him, and it need not be pursued). It is claimed that the third [APPELLANT] was a director of the [APPELLANT] and that accordingly the applicant's rights of subrogation under subs 40(4) are enforceable by the applicant jointly and severally against the [NAME] by virtue of subs 40(4). Similar allegations are made in relation to the [NAME] [APPELLANT], and the third [APPELLANT] as a director of the [NAME] [APPELLANT], except that it is not claimed that the [NAME] [APPELLANT] was a [NAME] in the scheme: it is said, however, that it carried on business as a [NAME] agent in New South Wales. The third [APPELLANT] by his defence denies some of the applicant's allegations: he denies the claimed application to wind up the [APPELLANT] and the order winding it up with effect from 19 August 1994 (but the evidence sufficiently establishes, in my view, that the winding up order was made with effect from that date); he denies an allegation that at the time when payments were made to the [APPELLANT] for the future provision of [NAME] [COMPANY] there were reasonable grounds to expect that the [APPELLANT] would not be able to account for each prepayment at the proper time (a matter which was not canvassed during the trial and which requires no further consideration); he denies that the alleged payments by the applicant to the claimants were payments made under the scheme by reason of an act or omission of a person carrying on business as a [NAME] agent and therefore the existence of any rights of subrogation and of enforcement under s 40. There are similar denials in relation to the [NAME] [APPELLANT]; in addition, the third [APPELLANT] denies that the [NAME] [APPELLANT] carried on business in New South Wales as a [NAME] agent (he also denies that the [NAME] [APPELLANT] is a company incorporated in New South Wales on 12 December 1989, and the denial seems to be correct: the evidence indicates that the [NAME] [APPELLANT] was incorporated in [NAME], but nothing, I think, turns on that). The remaining factual allegations in the applicant's amended statement of claim are not admitted. As I have mentioned, the third [APPELLANT] led no evidence. The evidence on behalf of the applicant comprised affidavits of [APPELLANT], a claims assessor for the applicant, and [APPELLANT], the applicant's Chief Executive Officer. There are annexed to Ms [NAME] affidavit Australian Securities Commission searches in relation to both the [NAME] and a summary of claims made to the applicant in respect of the [NAME] and payments made by the applicant to the claimants. There is also annexed a copy of the applicant's standard form of claim for compensation. To Mr [APPELLANT] affidavit there are exhibited copies of [NAME] trust deed, as in force during the relevant period, copies of minutes of the applicant's [NAME] recording resolutions relating to claims in respect of the [NAME] [APPELLANT] and a list of cheques, and copies of cheque requisitions, relating to payments made to the various claimants. Additionally, the affidavit evidence describes the procedure adopted by the applicant in dealing with claims, and in particular the claims relating to the [NAME] [APPELLANT]. [NAME] identifies schedules to the statement of claim originally filed by the applicant as listing the claimants, the dates on which each claimant made relevant payments to the first or [NAME] [APPELLANT] and the date and amount of each payment made by the applicant to each claimant. Additionally, there are in evidence the applicant's files on the claims relating to the [NAME]. Four files relating to the [APPELLANT] were separately tendered and I was taken to them in detail; I was also taken in detail to one of the files relating to the [NAME] [APPELLANT], which was separately marked for identification. The applicant argued that, on that evidence, it had made out its claims against the [NAME]; the third [APPELLANT] argued that no claim had been made out against him. A number of things were, in my view, particularly in the absence of any evidence to the contrary, clearly established by the evidence; they were not seriously disputed. Thus, the evidence enables me to find that the [APPELLANT] was incorporated, carried on business in New South Wales as a [NAME] agent, was a [NAME] in [NAME] and was wound up by order of the Court with effect from 19 August 1994. Equally, I find that the [NAME] [APPELLANT] was incorporated (though in [NAME]), carried on a business associated with that of the [APPELLANT] and was wound up by order of the Court as from 19 August 1994. I find also that the third [APPELLANT] was at all relevant times (at least until the winding‑up [APPELLANT] were made) a director of the [APPELLANT] and of the [NAME] [APPELLANT]. Similarly, I find that the applicant made the payments listed in the first and second schedule and the statement of claim filed on 5 September 1995, totalling $499,641, on claims relating to the [NAME]; and that those claims were in respect of payments made by the claimants to either the first or [NAME] [APPELLANT] on the dates listed in those schedules. I find that each amount so paid by a claimant was for [NAME] or arrangements (e.g. hotel accommodation) associated with [NAME]. Those findings, however, are insufficient, by themselves, to enable the applicant to succeed. Among other things (to which I shall return), they do not attribute particular payments to the [NAME] respectively and they do not, in relation to the [NAME] [APPELLANT], satisfy the requirement of subs 40(3) that it was a "person carrying on business as a [NAME] agent". The issue about apportionment arises, to a large extent, from the use by the [NAME], at various times, of similar names. The evidence indicates that the [NAME] [APPELLANT] was formerly known as [APPELLANT] and, before that, as [COMPANY]. One of the files to which I was specifically referred in relation to the [APPELLANT] related to [NAME] bookings made by [APPELLANT]. Correspondence addressed to Ms [NAME] is on notepaper headed "[NAME]" and one of the letters thanks Ms [NAME] "for choosing to use the [NAME] special [NAME] offer". However, at the foot of the notepaper one reads "[COMPANY] ... trading as [NAME]". I think I am on safe ground in inferring that "[NAME]", as well as being at one time part of the name of the [NAME] [APPELLANT], was also a trading name of the [APPELLANT]; and it appears clearly enough that it is in that sense that it is used in the correspondence with Ms [APPELLANT], that it was through the [APPELLANT] (not the [NAME]) that Ms [APPELLANT] made her bookings and that when Ms [NAME] in her claim form asserted that her arrangements were with the [NAME] [APPELLANT], rather than the first, she was simply mistaken. I was informed by counsel for the applicant, and Mr [COUNSEL] did not demur, that all the files which are now in evidence were discovered and produced for inspection many months ago; Mr [NAME] did not, however, draw my attention to matter in any other file which might be taken to indicate a mistake in attribution, by the applicant, of claims as between the [NAME]. In those circumstances it is open to me to find, and I do, that where the applicant's deponents say that a particular payment was made to the [APPELLANT], rather than the [NAME], that was indeed so. As for the other matter, whether the [NAME] [APPELLANT] carried on business as a [NAME] agent, I was taken specifically to a file relating to a booking by a Ms [NAME]. Her claim was said to relate to a payment to the [NAME] [APPELLANT]. On that file there is correspondence to Ms [APPELLANT] on paper headed "[NAME]" (not, incidentally "[COMPANY]"). There is no company name at the foot of that letterhead, merely an address. However, Ms [NAME] received, for a payment she made for "Fiji deal" a receipt signed on behalf of "[APPELLANT] [i.e., the [NAME] [APPELLANT]], level 2, 56 [ADDRESS] [POSTCODE]". Plainly what that indicates is that the [NAME] [APPELLANT] received from [NAME] a sum of [RESPONDENT] for, possibly among other things, return air fares to Fiji ("tickets", no doubt, within the meaning of subs 4(1) of the Act). The inference is clearly available that at that time the [NAME] [APPELLANT] carried on, or at least (which is sufficient: see subs 4(1) of the Act) held itself out as carrying on, business as a [NAME] agent. Again, it was not suggested to me that I might find in any other file material suggesting a different conclusion; and in circumstances where the third [APPELLANT], a director of the company, has chosen not to give evidence in my view I should, and I do, draw the inference. Even so, however, the applicant is entitled to the relief which it seeks only if the claimants had rights against the first or [NAME] [APPELLANT] and if the payments by the applicant were made "under [NAME] by reason of an act or omission" by the first or [NAME] [APPELLANT], as the case may be. It is convenient to deal first with the element of "act or omission". Except, perhaps, in the case of a payment authorised by sub cl 15.2 of the trust deed as amended on 15 May 1995, a payment under the deed is required or authorised only in circumstances where a person carrying on business as a [NAME] agent fails to account for [RESPONDENT] or other consideration entrusted to it in the course of carrying on that business; and the failure to account must arise from an act or omission by the person carrying on the business or an employee or agent of that person. Similarly, subs 40(3) of the Act confers rights of subrogation only in a case where a payment is made under [NAME] "by reason of an act or omission by a person carrying on business as a [NAME] agent". The mere failure to account is not, or at least is not necessarily, the relevant "act or omission": the terms of the deed assume that the act or omission is independent of, and precedes, the failure. In [APPELLANT] v Dunn supra, [APPELLANT[NAME] held, accordingly, that directors were not necessarily excused from liability because they had ceased to hold office at the time when the failure to account occurred. His Honour held, in the circumstances of that case, that the relevant act or omission, which led to the failure to account, was an omission to pay funds received from clients into a [COMPANY] which the [NAME] agent had established (though apparently having no legal obligation to do so). That omission occurred at a time when the directors still held office so that, subject to any defence available under subs (5), rights arising under subs (3) could be enforced against them under subs (4). Mr [NAME] submitted that in this case, if a failure to account were assumed for the purposes of the argument, no preceding act or omission was established by the evidence, or indeed sufficiently pleaded, so that no statutory right of subrogation arose. The evidence sufficiently establishes that the payments to the [NAME] [APPELLANT], giving rise to the claims paid by the applicant, were received during a relatively short period in 1994. Most of them were received in June and July of that year; relatively a few were received during May and a very small number earlier - the earliest in February. [NAME] arrangements in respect of which claims were paid by the applicant were not made (some, it seems, were for [NAME] on dates after the commencement of the winding up) and the relevant funds were not repaid by the [NAME] to the claimants. A provisional liquidator of each of the [NAME] was appointed on 22 July 1994 and each was wound up with effect from 19 August 1994. Thus, over a relatively brief period a large number of individual payments was received amounting in total to almost $500,000; a short time later a provisional liquidator of each company was appointed, shortly followed by a winding up order; and neither company in liquidation has seen fit to file a defence in these proceedings or take any part in the trial. In the circumstances I have no difficulty in holding, on the applicant's evidence, that in the case of each payment for which the applicant paid a claim there was a failure to account. Mr [APPELLANT] argued, however, that so far as the evidence went such a failure could equally have been due to intervention by the applicant and the appointment of a provisional liquidator (perhaps in circumstances where "trading out" would have been possible) as to any act or omission of either the first or the [NAME] [APPELLANT]. He argued that it was necessary, in each case, for the applicant to allege and prove a particular act or omission by the [NAME] agent, or its employee or agent, leading to the failure to account. Apart from failure to provide the [NAME] [COMPANY] paid for or to repay or account for the [RESPONDENT] paid, the amended statement of claim makes two relevant allegations in relation to the two [NAME]. Those relating to the [APPELLANT] are as follows (the allegations relating to the [NAME] [APPELLANT] are in the same terms):

23. Further or in the alternative the [APPELLANT] failed to ensure, on or before the time at which payments were made to the [APPELLANT] by or on behalf of the claimants for the future provision of [NAME] [COMPANY], that the [APPELLANT] would be able to meet its obligations to provide those [NAME] [COMPANY].

24. Further or in the alternative, when payments were made to the [APPELLANT] by or on behalf of claimants for the future provision of [NAME] [COMPANY], there were reasonable grounds to expect that the [APPELLANT] would not be able to account for each prepayment at the time it was obliged to pay over the moneys to ensure each claimant received the benefit of the [NAME] [COMPANY] the purpose for which (sic) the payment was made to the [APPELLANT].

I do not think that paragraph 24 (which, as I have said, the third [APPELLANT] denies) is of any particular assistance to a claim under the Act and I need not discuss it further. Paragraph 23, however, alleges an omission, albeit in general terms: it is asserted that on or before the time at which payments were made for [NAME] [COMPANY] the [APPELLANT] failed to ensure that it would be able to provide them. Mr [NAME] contention was that the effect of [NAME] is that an act or omission must be specified with much greater particularity. I do not think, however, that the judgment in [NAME] says that and I do not see why, as a matter of principle or of construction, it should be held to be required. Certainly it is possible to conceive of circumstances consistent with the evidence in which it might be held that there was no relevant act or omission of the first or [NAME] [APPELLANT]: [[APPELLANT]] applicant must establish the essential elements of its claim is not to say that the applicant is required by evidence to eliminate bank failures, earthquakes or other remotely possible, but highly unlikely, explanations of what has occurred. In the absence of any evidence on behalf of the third (or any other) [APPELLANT], it is open to me, and proper, to infer that the actual explanation is what experience teaches to be the probable one: that is that at the time the [RESPONDENT] was received by the [NAME] they were in a parlous financial situation and that they did not - for example, but only for example, by establishing a [COMPANY] for receipt of the [RESPONDENT] - take steps which would ensure that obligations to provide [NAME] [COMPANY] could be met or, at least, that [RESPONDENT] received could be refunded. The failure to take such steps is the omission to be attributed to the [NAME], leading to their failure to account. That finding is sufficient, all other essential elements of the claim being established, to make good a claim to subrogation under s 40(3) of the Act. The third [APPELLANT] was a director at the time of receipt of all the payments and remained in office until the companies went into liquidation. Though it probably does not matter, on the evidence (and see Corporations Law s 471A) he appears to remain in office to the present day. He was in any event in office throughout the period in which the relevant omission occurred that is, the period from the first of the payments listed in the schedules to the statement of claim to, probably, the date on which the provisional liquidator was appointed or, possibly, the making of the winding up order (it does not matter which is correct). There can, I think, be no doubt in the circumstances that each claimant had rights against the first or [NAME] [APPELLANT], as the case may be, resulting from its receipt and acceptance of [RESPONDENT] on terms that it was to be applied for the purchase of particular [NAME] arrangements and in circumstances where the [APPELLANT] [NAME] did not, or could not, either provide the [NAME] arrangements or refund the [RESPONDENT]. I see no reason to doubt, on the applicant's evidence and in the absence of evidence to the contrary, that in each case the amount claimable against the [APPELLANT] [NAME] is the amount paid to it. Conclusion It follows that the applicant succeeds in its claim to subrogation under subs 40(3) of the Act and to entitlement to enforce the rights to which it is subrogated jointly and severally, in the case of payments made to the [APPELLANT], against the [NAME] and, in the case of payments made to the [NAME] [APPELLANT], jointly and severally against the [NAME]. The amount of the claims paid in respect of the [APPELLANT] is $472,445; the amount of the claims paid in respect of the [NAME] [APPELLANT] is $27,196. Accordingly there will be judgment against the [APPELLANT] $472,445, against the [NAME] [APPELLANT] for $27,196 and against the third [APPELLANT] for $499,641. The applicant seeks interest under s 51A of the Federal Court of Australia Act 1976; Mr [NAME] did not address the question, and I will of course hear him on it if he wishes, but at present I can see no reason why the applicant should not have interest on the principal amount of each judgment, calculated in the ordinary way. The applicant is also, of course, entitled to its costs of the proceedings against each of the first, [NAME]. The costs of the hearing, from the time at which legal representatives of the other respondents were excused from further attendance, should be the responsibility of the third [APPELLANT]. I direct the applicant within seven days from the delivery of these reasons for judgment to file and serve on the [NAME] short minutes giving effect to those conclusions. The parties may approach my associate to make arrangements for setting the matter down in order to deal with any matter, as to the [APPELLANT], in dispute and for the making of final [APPELLANT]. I certify that this and the preceding 28 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane. Associate: Dated: 13 February 1997 Heard: 3 February 1997 Place: Sydney Decision: 13 February 1997 Appearances:Mr [COUNSEL] and Mr [COUNSEL] of counsel instructed by [COUNSEL] [NAME] appeared for the applicant. Mr [COUNSEL] of [NAME] appeared for the third [APPELLANT]. Ms [COUNSEL] of [NAME] appeared for the [NAME]. Ms [COUNSEL] of [NAME] appeared for the second [APPELLANT].